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Embarrassing Entrepreneur Mistake

After selling my businesses, I was all full of myself and decided to get involved in some angel investing. This is where I started to learn about entrepreneurial miscalculations, which started to form the realistic and experience-torn foundation of the Startup Assembly Manual.  Without names, this is the story and lessons I hope to pass along.

The idea was credible. An engineering firm had developed a process to dramatically improve the brightness and clarity of LCD screens for devices like mobile phones and electronic panels such as ATMs where glare and sunny environments make it hard to see.  Not only did it improve the visual performance, but the process was about 60% cheaper for manufacturers of such display devices, which was a limitless market.

They had signed up the leader in the industry to be their sales outlet as the exclusive provider of this treatment process to all the makers of LCD displays.  What could go wrong?  I jumped at the opportunity.

The problem with the business wasn’t the product—which was terrific—but with the contractual deal with the sales channel and the word “exclusive”.  Two issues: they wanted to control the product so that they could keep it from competing with a more expensive process in which they had a vested interest, and, secondly, they wanted to use it to get deals so they could get a higher margin in the other services they offered, after which they substituted their own process.

The numerous “quotes” we prepared never turned into revenue.  We spent a lot of money building a laboratory and facilities and infrastructure for a business that never had a chance to even get started. It wasn’t the fault of the entrepreneurs, my partners, directly.  We just got screwed because we did not understand the motivations of the “customer”.

So, here are the lessons:  Be very cautious about exclusive customers—the deal can turn against you if you don’t fully understand them and their motivations. Secondly, ALWAYS get a contract that can avoid such terminal failures—don’t trust anyone unless all your bases are covered and you have flexibility in case it doesn’t end up being what you thought it was.  And always line up alternatives, backups in case the primary deal falls apart. And ALWAYS understand your customer thoroughly.

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